Real Estate Capital Scoreboard® – August, 2019

Chicago, Illinois, August 1, 2019 – The economy keeps humming along backed by strong retail sales and low unemployment. However, the big news of the summer is the Fed’s quarter-point rate cut at the end of July. This cut represents the first drop in since the Great Recession, over a decade ago. Policymakers are preempting softer economic conditions, and the effects of the trade war with China. The Fed’s goal is to maintain the record-long economic expansion, while controlling inflation. The Fed also warned that further rate cuts are unlikely.

As of early August, the benchmark 10-year treasury dipped below 2%, hitting a new low under the current administration. This year alone, rates dropped about two-thirds of a percent. Even before the Fed’s announcement, the second quarter 30-year mortgage rates for homeowners dropped below 4%, as markets expected some type of cut.

Commercial mortgage rates continue hovering in low territory, with a 10-year debt available in the lower- to-mid-three percent range for conservatively funded deals. Rates are about 75 basis points lower than the start of the year. Mortgage spreads over treasuries stay unchanged, based on an oversupply of real estate capital. No relief in sight for debt investors searching for yield, as mortgage pricing compression continues across most markets and property sectors.

The director of the Real Estate Capital Institute®, John Oharenko, comments, “The current cycle rewards borrowers, rather than savers. Borrowers welcome debt service payment relief, as labor costs and other ownership expenses escalate.”

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